When faced with a mountain of debt, bankruptcy can seem like an attractive alternative. Even though it is a scary option to consider, it might feel necessary when you simply can't make your monthly payments. There are two main bankruptcy options: Chapter 7 and Chapter 13. Using Chapter 7 discharges most of a person's unsecured debt, including credit cards and personal loans, and filers may be required to sell personal assets. Chapter 13 bankruptcy is referred to as "reorganization" bankruptcy because that's what it does with debt. Filers are required to pay their creditors over time using a repayment plan, and those filing need to show proof of regular income in order to pay back the debt. Filing for bankruptcy is not an easy or quick decision, and careful consideration is required. Here are eight tips you need to know before you file for bankruptcy.
Chapter 7 bankruptcy can take three or four months, while Chapter 13 can take up to five years.
Bankruptcy is not a cure-all, and there are options to consider besides filing. Credit counseling, loan refinancing, and credit card consolidation can help reorganize debt and make it easier to pay back.
This service helps individuals to put a lot of little debts into one large one to pay off. Instead of having multiple debts and creditors to pay each month, you can combine them into a single loan with one monthly payment. This can help make debt easier to manage.
Despite popular opinion, not all debts are discharged when individuals file for bankruptcy. Those who file will still be required to pay child support, back taxes, alimony, and students loans.
Under the current program, college graduates who work full-time in many service-based industries and non-profit organizations can get much of their consolidated student loans forgiven. Payments are calculated through three different programs: Income Based Repayment plan, Income Contingent Repayment, or Pay As You Earn Plan. 120 payments must be made, and the balance of the loan is forgiven.
Late in 2017, the Representatives passed the Tax Cuts & Jobs Act that cut much of the tax savings for current and graduated students with loans. Trump wants to consolidate all current repayment plans into Income-Based Repayment program. Students would pay 12.5% of their income toward their loans each month and receive total loan forgiveness after 15 years.
Individuals who are not yet enrolled but qualified for this program need to take the steps necessary to enroll. If they are not in the Direct Loan Program, consolidate the students loans as needed. Certify your employment status and keep in good standing with student loan payments.
Those with student loans have found some debt relief by using the Public Student Loan Forgiveness program.